Saturday, May 15, 2021

Hitting Zero: 700 Years of Declining Global Real Interest Rates

by Jan Nieuwenhuijs, Voima Gold:

Are negative interests here to stay?

A recent study by Yale economist Paul Schmelzing suggests that global real interest rates “could soon enter permanently negative territory.”

In Mesopotamia around the third millennium B.C. there were two types of money circulating: barley and silver. The interest rate on a barley loan was usually 33%, whereas, on silver, it was 20%. At the time of writing, the interest rate where I live (the Netherlands) on my savings account—technically a loan to the bank—is zero percent. And my country is no exception. An enormous difference compared to the earliest economy we have written evidence of—that of the Sumerians living in Mesopotamia 4,500 years ago.

Market Report: Base Metals Support Silver

by Alasdair Macleod, GoldMoney:

Base metals have perked up this week, which on top of earlier rises places copper up 5% in the last thirty days. Lead is up 10%, zinc is up 5% in the last month and nickel is up 40% in the last six months. These performances appear to be underwriting silver prices relative to gold.

Hopium and the Sounds of Silence

by Gary Christenson, Miles Franklin:

What Silence?

Have you heard loud warnings from Mainstream Media or from official government sources about the following huge problems? No! Official sources and the media are largely silent. They can’t/won’t discuss our serious problems and prefer the hopium strategy.

Gold and Debt: Asia has accumulated thousands of tons of gold. The U.S. has created over $22 trillion in federal government debt and $72 trillion in total debt per the St. Louis Federal Reserve. What happens when they devalue the dollar further, and gold prices go sky high?

Wall Street’s Misallocation of Capital Is Worse Today than the Era

by Pam Martens and Russ Martens, Wall St On Parade:

Short memories are going to once again doom millions of stock market investors who are getting their advice from Wall Street’s minions of deeply conflicted analysts and brokers. This is a good time to reflect on the fact that when the bubble went bust from 2000 to 2002 it wiped 78 percent of the value off the Nasdaq stock index. In the midst of the crash, this is how Ron Chernow correctly described what was happening for New York Times’ readers on March 15, 2001:

“Let us be clear about the magnitude of the Nasdaq collapse. The tumble has been so steep and so bloody — close to $4 trillion in market value erased in one year — that it amounts to nearly four times the carnage recorded in the October 1987 crash.”

This Small Move Could Send a Tidal Wave of Money into Gold Stocks

by Marin Katusa, Katusa Research:

At 3,950 feet wide and 176 feet tall, the legendary Niagara Falls is the most powerful waterfall in North America.

Straddling the border between the U.S. and Canada, Niagara sees approximately 3,160 tons of water go over its edge it every second. It’s said The Great Lakes contain 20{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the world’s freshwater. Most of it passes over Niagara Falls as it drains into the Atlantic Ocean via the St. Lawrence River.

Many of us can remember a trip to Niagara Falls and recall hearing the water’s power as it roared from below.

Now, think if all that water tried to go over the falls through a single fire hose. If you had a miracle hose that wouldn’t bust, the pressure would create a water jet that goes for miles.

Yes, it’s a ridiculous scenario. But it’s a useful analogy for explaining how the gold mining sector would be affected if some of the world’s largest investment funds decided to make even a small increase in their allocation to physical gold and gold stocks. It would be like trying to drain Niagara Falls with a fire hose. Just a small percentage increase in allocation towards gold and gold stocks among global fund managers would make gold stocks double… and then double again… and double again.

Below, we’ll look at the numbers. But first, let’s review who really moves stock and bond prices…

When it comes to the investment markets, a small investor has no effect on asset prices. Even the buying and selling of a wealthy individual with $200 million has no effect on stock and bond markets. The guy with $200 million is a mouse when it comes to the elephants.

By elephants, I mean large pension funds, large hedge funds, large insurance funds, and large sovereign wealth funds. These funds invest the money for tens of thousands of people. They control not just hundreds of millions… but often hundreds of billions. For example, oil-rich Norway’s $1 trillion sovereign wealth fund controls 5,000 times more money than the rich guy with $200 million. Elephants like Norway’s fund managers are the people that move markets and create long-term price trends.

Now realize that the managers of these mega funds are just regular people. They are as likely to fall victim to groupthink as anyone. They don’t like to stray far from the herd. They tend to make the same decisions at the same time.

When a group of large investment funds decides to buy into a market, they can put well over $100 billion to work. So, elephants typically stick to very large, very liquid markets like large-cap U.S. stocks and corporate bonds.

However, some elephants occasionally stray from the herd. They buy into less liquid markets. For example, some of them will buy gold stocks and physical gold. If concerns over the safety of the global monetary system increase (as they did in 2008), more than a few elephants will want to buy gold and gold stocks for both protection and profit potential.

That elephant money will flow into a relatively tiny sector. The current market value of all major publicly-traded gold companies is around $330 billion. This might sound large, but it’s actually tiny in global finance terms.

The entire gold mining industry is smaller than just Facebook ($500 billion market cap) or Google ($650 billion market cap). The chart below shows this comparison, along with Apple and U.S. oil and gas industry for good measure.

To look at it from another angle, consider the $20 billion market cap of the world’s largest gold mining company, Newmont. Newmont is a giant that shapes the industry. It does some of the biggest deals. It has the resources to hire the industry’s best people. It produced over 5 million ounces of gold in 2016. That’s a tremendous amount of gold.

Yet, a $20 billion market cap won’t even get you a spot on the top 20 North American oil and gas companies. Newmont is smaller than 266 companies in the benchmark S&P 500.

If just 10 out of the hundreds of money managers around the world with more than $50 billion to invest were to each place just 1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of their portfolios into Newmont, they would buy 25{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of Newmont. That very small ripple in the ocean of large fund management would produce a buying tsunami that lands on the shores of the gold mining industry.

You might be thinking, “Sounds good in theory, Marin, but this wouldn’t happen in real life.”

If you’re thinking that, you’re dead wrong. This line of thinking isn’t theoretical. Two situations in recent history show how small sectors can stage extraordinary moves when even a small percentage of the world’s capital flows into it.

***In 2003, I spent a lot of time and energy researching the uranium market. I became convinced the industry would face a supply/demand crunch which would send uranium into a major bull market I took a huge position in uranium stocks.

At the time, the uranium market was much smaller than the gold market is today. The world’s largest miner, Cameco, had a market cap of just $2 billion.

My thinking turned out to be right. Uranium entered a bull market and attracted a lot of investor interest. But because the industry was so small, investment capital could only flow into a handful of legitimate uranium miners. During the uranium bull market of 2003 – 2007, Cameco climbed 1,300{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. Pitchstone Energy climbed 700{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. Paladin Uranium climbed over 1,000{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}.

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The Weekly Perspective with David Morgan – Global Debt-to-GDP is at All-Time Highs

by Kerry Lutz, Financial Survival Network:

David Morgan‘s weekly perspective…

The global debt-to-GDP ratio hit an all-time high of 322% in the third quarter of last year, according to a report released Monday by the Institute of International Finance.

Debt rose by almost US$10 trillion to US$252.6 trillion from a year earlier, said the Washington-based IIF, which is comprised of the world’s leading financial institutions. Debt from all sectors — ranging from household to government to corporate bonds — surged.

Today’s monetary system is based upon a lie. The lie is that you can get something for nothing, or perhaps more simply stated, wealth can be printed. History has shown throughout 5000 years that whenever a country has tried to maintain this illusion (lie), failure has been the result. You can continue to grow your wealth regardless of the changing winds of politics, the economy and the financial markets. Let me show you how…

Click HERE to Listen


by Joseph P. Farrell, Giza Death Star:

There’s an important article over at Zero Hedge that was shared by V.T., and I have to pass it along, because it highlights a problem that during the last few years has become lost in the shuffle: derivatives. These, as the article points out, are at the heart of the problem. Here’s the story:

A Bank With $49 Trillion In Derivatives Exposure Is Melting Down Before Our Eyes

What’s worth paying attention to here is the following: